Protecting your assets
Simple steps to providing for your
family and friends
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Contents
Inheritance tax
Do you know how much you’re worth?
Reducing the effect of inheritance tax
Protecting your assets with a trust
Choosing a trust:
- Trusts that use bonds
- A trust for your SIPP death benefits
The importance of making a will
Family wealth transfer at a glance
Before you make any financial planning decisions, you
need to know what the risks and commitments are. Read
the relevant key features document. It will help you decide
if the product is right for you. If you’re still not sure what to
do, speak to your financial adviser.
Laws and tax rules may change in the future.
The information here is based on our experts’
understanding in January 2012. Your personal
circumstances also have an impact on tax treatment.
What does ‘family wealth
transfer’ mean for me?
Estate planning, asset protection,
cross-generational planning. There
are lots of different ways to talk about
‘family wealth transfer’. And usually it
sounds complicated. But in a nutshell,
it’s just making sure that your money,
property and possessions end up in
the hands of the people you love.
Simple steps to protecting
your assets
It’s about planning your finances and
protecting your assets, both now and in the
future. And of course no-one really wants to
think about dying. But wouldn’t it be reassuring
if you knew that what you’ve worked for would
be enjoyed by your family or friends?
There are gifts and transfers that don’t attract
an inheritance tax charge when you make them
(and that can reduce the value of what you’ll be
taxed on when you die). So you should make
the most of these first if you can.
Figure out how much you’re worth
You need to know how much everything you
own is worth before you start. Once you know
that, you can figure out if your estate will be
liable to inheritance tax (IHT).
Taking steps to reduce your inheritance tax
Using a trust for family wealth
transfer benefits
Whether you’re protecting your pension
benefits, or setting up a trust to hold an
investment bond, our trusts are an important
step in protecting your assets. And they can
provide flexibility, control and tax-efficiency.
Details of our range of trusts start on page 9.
The importance of making a will
Make sure your possessions are given to the
people you choose, and make things easier
for your family and friends at a difficult time.
A will is an essential part of your plans. Turn to
page 14 for more information.
i
Some important definitions
An ‘estate’ isn’t just for people with country
houses and acres of land. Everyone leaves
behind an estate when they die, it’s just the
total of all your possessions and property
minus debts. And your estate can be liable for
a tax bill after you die.
And when we talk about ‘protecting your
assets’, we're not referring to the value of your
assets. The value of assets can go down as
well as up. Instead, we're referring to making
sure that only the people you want to get your
assets will get them.
When we talk about your ‘assets’, these can
be anything you own that could be worth
something. For example some of your assets
are your house, your car, and the cash in your
bank account.
Protecting your assets 01
Inheritance tax
How it works
Inheritance tax used to be a tax on the very
wealthy. But things change, and it's now
becoming a concern for people on average
incomes, who may end up leaving a tax bill
when they die.
Inheritance tax is usually paid on your estate
when you die, if it’s over a certain value. It’s
sometimes payable on gifts made during your
lifetime too.
When we refer to
your estate here, it
includes any gifts made
in the seven years
before death.
Your estate is worth
less than
£325,000
Your estate is worth
more than
£325,000
=
=
No IHT
40% IHT charge*
* unless an IHT exemption is available
£325,000 is the current threshold for
inheritance tax. Usually the threshold rises
each year but it has been frozen at £325,000
for tax years up to and including 2014–15.
Each person can have an estate of up to
£325,000 before they will be charged
inheritance tax (this £325,000 threshold is
often called the ‘nil rate band’). If you don’t
use all of it when you die, what’s left can be
carried forward for your spouse or civil partner
to use when they die. So if you’re the surviving
spouse or civil partner, you could have a
£650,000 threshold instead.
02 Protecting your assets
Does everyone in the UK
have to pay IHT?
This depends on your domicile. You are
normally domiciled in the UK if you have your
permanent home in the UK. It is not the same
as nationality or residence.
And sometimes you will be treated as
domiciled in the UK even if you don’t have your
permanent home in the UK at the moment.
If you are domiciled or treated as domiciled
in the UK, inheritance tax can be payable on
certain lifetime gifts or on death, wherever your
assets are in the world.
Where you are domiciled is an important issue,
as it has an impact on how inheritance tax will
be applied. If you think this issue could affect
you, speak to your adviser for more information
and advice.
Your estate is the total of all
your possessions and property
minus your debts.
And if your estate is worth more
than £325,000, you could be charged
inheritance tax - unless you act now.
Protecting your assets 03
Do you know how
much you’re worth?
Most people don’t know the answer to that question. And even if you make an educated guess,
there will probably be things that you forget about.
If the total value of your assets is over £325,000, 40% of anything over that may have to be paid
in inheritance tax.
Things to consider
Assets you might own
An example
Andrew Clark’s assets
Your home (your share of it)
£450,000
Your assets
Any other property eg holiday home
Your household contents including jewellery
£25,000
Cars, boats, caravans
£10,000
Cash (including bank accounts)
£1,000
Investments (including stocks and shares)
£27,000
Life assurance (which is paid to your estate)
£45,000
Anything you’ve inherited (from a relative or friend)
Any gifts you’ve made in the last seven years
(including into a trust)
Total
£558,000
And expenses your estate could have to pay
Expenses your estate could have to pay
An example
Andrew Clark’s assets
Your share of any outstanding mortgage
£50,000
Funeral expenses
£5,000
Other loans outstanding
04 Protecting your assets
Any debts (overdraft, credit cards, utility bills etc)
£500
Total
£55,500
Your potential
expenses
Where we refer to
your estate here, it
includes any gifts made
in the seven years
before death.
Here’s how the tax bill is calculated
Total assets
-
Total expenses
=
Value of your estate
Value of your
estate
-
£325,000
=
Value that would attract an IHT charge
Then figure out 40% of this value and that gives you the total inheritance tax bill
Remember, anything passing to your surviving spouse or civil partner is exempt (if they are UK
domiciled), but you need to consider what happens when they die.
Here's how our example would work out
Total assets
£558,000
-
Total expenses
£55,500
=
Value of the estate £502,500
Value of the
estate £502,500
-
£325,000
=
Value that would attract an IHT
charge £177,500
=
£71,000
40% of this is the IHT bill
Don’t have more than
£325,000 in assets?
If you don’t (and you’ve definitely considered all
of your assets), then you don’t need to worry
about losing some of your estate to pay an
inheritance tax bill. But have you made sure that
your assets are protected now and in the future, and
that they will go to who you want when you die?
A trust could still be beneficial and a will is absolutely
essential. Make sure you read pages 9 and 14.
Protecting your assets 05
Reducing the effect
of inheritance tax
Taking the first steps
Reducing the inheritance tax that would be paid by your estate doesn’t have to be complex.
There are some simple and effective ways to do this. And you can start now.
Exempt transfers
The taxman will let you make a number of transfers or gifts that don’t attract an inheritance tax
charge (and can reduce the value of assets that you’ll be taxed on).
Non-domiciled spouse
or civil partner?
The £55,000 limit is
a lifetime allowance.
If you think this may
affect you, speak to your
financial adviser for
more information.
Type of transfer
Exempt value
Transfers between spouses or civil partners
If you’re both UK domiciled, these are exempt from IHT.
If you have a non-domiciled spouse or civil partner.
Unlimited
£55,000 lifetime limit
Annual exemptions
Everyone can make exempt transfers every year using
this exemption, and can carry forward any unused amount
for one year only.
Small gift exemption
You can give small gifts to as many people as you like in
one tax year. You can give one small gift to each person.
You can’t give more than £250 and claim that the first
£250 is a small gift, and you can’t combine it with an
annual exemption as one gift.
£3,000 a year (or £6,000 if you didn’t use it
the year before)
Up to £250 a year per person
Gifts on marriage
You won’t be charged IHT on certain gifts that you
make when a family member or friend gets married.
£5,000 from each parent
£2,500 from each grandparent
£2,500 by the bride and groom to each other
£1,000 to anyone else
Gifts to charities
Unlimited
Gifts for national benefit
For example you can give money to some national
institutions like museums, universities or the
National Trust.
Unlimited
Normal expenditure out of income
If you can prove that you have income you don’t need to
maintain your current standard of living, you can make a
regular gift of it as part of your normal expenditure.
Varies, depending on your surplus income
“I know I’m lucky – I don’t have to worry about
getting by. So when Christmas comes around,
I like to give my daughter extra help with the
cost of presents for my grandchildren. I don’t
miss it, and I know it means a lot to her.”
If you can prove you don’t need the income, the
‘normal expenditure out of income’ exemption can
really make a difference to your IHT position.
06 Protecting your assets
Transfers that may attract a charge
There are some transfers or gifts that may
attract an inheritance tax charge. The charge
can arise when a gift is made, and later if you
die in the seven years after you make the gift.
Potentially Exempt Transfers (PET)
You can make other gifts that will be exempt
from inheritance tax if you live for seven years
after making them – so there’s no up-front
inheritance tax.
If you die within seven years of making the
gift, it will be included in any calculations
of inheritance tax. If the value of the gift is
already over the inheritance tax threshold, or
the value of the gift when added to the value
of your assets is over the threshold, there may
be a charge.
If your Potentially Exempt Transfer later becomes
taxable on your death, taper relief can help
reduce the tax payable. Here’s how it works:
Time between making
Percentage reduction of
the gift and date of death tax due
0 – 3 years
None
3 – 4 years
20%
4 – 5 years
40%
5 – 6 years
60%
6 – 7 years
80%
Chargeable Transfers
These are any transfers that aren’t Potentially
Exempt Transfers or exempt transfers (see the
list of exemptions above).
These can attract an inheritance tax charge
when made, and later if you die in the seven
years from when you made the transfer.
The myth: You can’t give any money
away while you’re alive, as it will still
be liable for tax after your death.
The reality: You can actually give away quite a lot
while you’re alive, and it might be a good idea to
give away as much as you can each year.
Protecting your assets 07
Are you thinking about protecting
your assets now and in the
future? A trust could help.
08 Protecting your assets
Consider protecting your
assets with a trust
If you’re looking to protect your assets both
now and in the future, this is where a trust
can help.
Three key questions to ask yourself
when considering a trust:
1.Do you need access to your
money or an income from it
after it is in the trust?
Or are you certain that you won’t need to
access the money in the future.
2.Who will you appoint as
the trustees?
Do you want to include yourself as a trustee?
(This can give you some control over the
decisions that are made.)
3.Who are your beneficiaries?
Do you know who they are now, or might
they need to change in the future? There
are different types of trusts depending
on whether you’ve made your mind up
about this. At one end of the scale is
the Absolute Trust, for people whose
beneficiaries are set in stone, and at the
other end is the Discretionary Trust, where
you can leave it open and give the trustees
the final say on who benefits from the trust,
how much and when.
Types of trust
¬¬We have a range of bonds available, which
can be held in different types of trust:
–– If you want to retain access to your
original capital, take a look at our
Loan Plan on page 10
–– If you need regular withdrawals for the
rest of your lifetime (or until the fund
reduces to zero), but still want to do
some tax planning, read more about our
Discounted Gift Plan on page 10
–– If you’d like to retain some control as a
trustee over who gets what, but don’t
need the money or any access to it, our
Gift Plan could be useful, see page 11
¬¬If you have a SIPP, and would like to protect
the death benefits that are paid out when
you die (and potentially reduce inheritance
tax for your beneficiaries), our Bypass Trust
could be useful. See pages 12 and 13 for
more details
Protecting your assets 09
Choosing a trust
Trusts that hold a bond
Standard Life offers a range of different trusts that can be used to hold a bond. These trusts offer
different things so that you can choose the one that suits your needs best – this will mainly come
down to whether you would like to retain access to money in the future.
The Loan Plan
The Discounted Gift Plan
¬¬ You make a loan to the plan (instead of
a gift of your money) so you still have
access to your money when you need it
¬¬ You can gift your assets and keep your right
to regular withdrawals from the trust – for life
or until the fund reduces to zero​
¬¬ The plan gives you the flexibility to stop
and start loan repayments​
¬¬ Based on your age, sex, health and the rate of
withdrawals, a discount may be given
¬¬ Only the amount of the outstanding loan
is included in your estate on death
¬¬ The plan takes the gift out of your estate
after seven years
¬¬ You can recall, gift or cancel the outstanding
loan at any time
¬¬ If you die within seven years, the amount
within your estate for IHT purposes may
be less than the original gift
¬¬ You can retain some control by acting
as a trustee
¬¬ Any investment growth is outside your estate
Max and Liz Fortune are in their mid-sixties with
two daughters and a son. They’d just like to make
a start with inheritance tax planning, and need
their plans to take into account their concerns
about their children.
Since the couple don’t like their daughter’s
partner and their son is currently going through
a divorce, they want to be cautious about giving
away any of their capital so that it doesn’t end
up in the wrong hands.
Their solution
¬¬ They have loaned the trustees £75,000
¬¬ Max and Liz have decided to have some
control over the trust, so have chosen
to become trustees, with one of their
daughters as the third trustee
¬¬ The Loan Plan is set up using a Standard Life
Investment Bond
The outcome
¬¬ Max and Liz are still entitled to the
loan repayment
¬¬ The value of any growth is outside of their
estate and belongs to the trust
¬¬ The trustees can control payments to
the beneficiaries at a later date
10 Protecting your assets
¬¬ You can retain some control by acting
as a trustee
¬¬ Any investment growth is outside your estate
Stuart Wilson is 65, recently retired and proud
grandfather to Rebecca and Andrew. His estate is
valued at £950,000, and although Stuart is aware
of his current inheritance tax risk, he feels that he
isn’t able to completely give up his capital, in case
his pension won’t maintain his current standard
of living.
His solution
Stuart gifts £300,000 into a Discounted Gift Plan,
and takes withdrawal payments of £15,000 each
year. As his health is normal for his age, this gift
is discounted by £150,958 to reflect the value of
the withdrawal payments. For tax purposes, this
would reduce the value of his gift to £149,042.
The outcome
No IHT is payable when the gift is made.
If Stuart dies within seven years of starting the
plan, his estate will be valued at £799,042 (that’s
the original remaining £650,000 plus the
discounted gift of £149,042). Allowing for
the current inheritance tax threshold of
£325,000, the Discounted Gift Plan would deliver
a saving of over £60,000, meaning more funds
are left for his beneficiaries.
After seven years, Stuart will not be liable for
further inheritance tax on the funds he gifted to
the discounted gift plan.
The Gift Plan
¬¬ You give away your money with no
future access
¬¬ The plan takes the gift out of your estate after
seven years
¬¬ You can retain some control by acting
as a trustee
¬¬ Any investment growth is outside your estate
Robert and Sarah Henry are in their early sixties
and have one daughter who is currently going
through a very messy divorce. They're aware
that inheritance tax will be an issue and want
to make sure that their daughter and teenage
grandchildren are protected in the future and
that their former son-in-law won't benefit
from the gift.
i
Each type of trust has
different tax implications.
So you should always
take professional advice if
you’re considering a trust.
The amounts in these case studies are examples
only and should not be treated as financial advice.
They have not made any gifts before and have
just decided to downsize to a smaller home,
freeing up a lot of cash that they can use to
plan their future.
Their solution
¬¬ They decide to gift £150,000 to a Gift Plan.
They appoint themselves and their daughter
as trustees
¬¬ The trustees invest in a Standard Life
Investment Bond using the £150,000
The outcome
¬¬ No IHT is payable when the gift is made
¬¬ The investment growth is permanently
outside of the couple's estate for inheritance
tax purposes
¬¬ The original gift of £150,000 will not
be included in their estate provided they
survive seven years after making the gift
¬¬ Since no value is added to their
daughter's estate, the money in the trust
will have no impact on any financial
settlement in her divorce proceedings
Protecting your assets 11
The Bypass Trust
Protect the benefits of your SIPP
We’ve designed a simple way to pay the lump
sum death benefits from your SIPP into a trust
instead of directly to an individual. The Bypass
Trust offers flexibility, asset protection and
potential inheritance tax benefits.
Did you know that by nominating your
spouse or civil partner to receive your
pension scheme death benefits, you
could increase their inheritance tax bill?
¬¬On your death, the pension scheme trustees
will distribute any lump sum death benefits,
normally to your spouse or civil partner
¬¬This lump sum will increase the value of
their estate, and may take them over the IHT
threshold, meaning that their estate would
be liable for a larger inheritance tax bill
What difference would the Bypass
Trust make?
How things work without the trust
Here’s an example. If you die and your lump
sum death benefits are paid to your spouse or
civil partner, they may also die before spending
it all. Let’s assume your surviving spouse/civil
partner has an estate worth £775,000,
including £150,000 of unspent lump sum
death benefits paid from your SIPP.
To work out the tax due, the executors deduct
the available inheritance tax threshold –
£325,000 – from the value of the total estate.
What’s left is then taxed at 40%.
So £180,000 of your spouse or civil partner’s
estate (which included some of your lump sum
death benefits) would be going to the taxman.
Wouldn’t you prefer that this money was given
to your beneficiaries?
Total estate
£775,000
Inheritance tax threshold
£325,000
=
Taxable estate
£450,000
IHT payable (at 40%)
£180,000
12 Protecting your assets
Now take a look at how things change
with the Bypass Trust
Using the same example, instead of paying the
lump sum death benefits from your SIPP to your
spouse or civil partner, let’s say they were paid
to the Bypass Trust, and your trustees loaned
£300,000 to your spouse or civil partner.
Your surviving spouse or civil partner has
assets on their death worth £775,000. The total
includes £150,000 of the original loan which has
not been spent. But there’s a debt of £300,000
(outstanding loan amount) which needs to be
repaid to the Bypass trustees. Remember, the
executors will deduct the current threshold of
£325,000 from the value of the total estate.
What’s left is still taxed at 40%.
Total estate (includes £150,000 of
unspent loan) £775,000
Using the Bypass Trust would have
meant that an extra £120,000 was
available to your beneficiaries rather
than paid to the taxman.
Without the Bypass Trust
£595,000
passed to the
beneficiaries
Taxman
takes
£180,000
The loan (debt on the estate)
£300,000
Inheritance tax threshold
£325,000
=
With the Bypass Trust
£715,000
passed to
beneficiaries
Taxable estate
£150,000
IHT payable (at 40%)
£60,000
Taxman
takes
£60,000
Protecting your assets 13
The importance
of making a will
It’s the key to protecting your possessions, and
passing them on to the people you choose.
And it makes things easier for your family and
friends at a difficult time. So why do so many
people put off writing a will?
And you need to keep your will up-to-date.
Major life events like getting married, divorced
or having children all have a major impact on
where you’d want your money to go, so it’s
essential that your will keeps up.
Reasons for making a will
What happens if I don’t have a will?
¬¬ To choose how you distribute your
personal possessions
The law will decide what happens to your
estate. So it won’t necessarily be distributed to
the people you want to have it. Your surviving
spouse or civil partner won’t automatically
inherit the whole estate.
¬¬ To provide for your children and choose their guardians
¬¬ To make your funeral arrangements clear
¬¬ To leave money to your favourite charity
¬¬ To choose the right people to distribute
your assets and look after your estate
Get advice and keep up-to-date
Professional advice is always recommended
when it comes to legal matters. If you want to
be sure that your assets are protected for your
family and friends, taking legal advice is a
good idea.
So if you want to protect your assets, and
make sure they go to people you love, a will
is essential.
Do your family and friends know
where to find your will?
Once you’ve made your will, you need to keep it
in a safe place. And you need to tell your close
family or friends where it is. If you’ve asked a
solicitor to make your will, they’ll usually keep
the original and send you a copy too.
The Treasury gained £53 million from
people who died without a will last year.
The year before, it was £76 million. Are
you happy to give them your money too?
Source: BBC News 19 October 2011
14 Protecting your assets
The myth: You don’t need a will
if you’re leaving everything to
your spouse or civil partner.
The reality: A will is essential, whatever
age you are, because if you die without
one, your assets are divided according
to the law, not your wishes.
Protecting your assets 15
Family wealth transfer
at a glance
Figure out how much you’re worth
It’s important to add up how much your assets
are worth, and make sure you’ve considered
them all. Once you know that, you can see if
your estate will be liable to inheritance tax,
which will help your adviser to offer the right
solutions for you.
Taking steps to reduce your
inheritance tax
You can make gifts and transfers that don’t
attract an inheritance tax charge. So you
should make the most of these if you can.
Using a trust to protect your assets
and help with your tax planning
Whether you’re protecting your pension
benefits, or setting up a trust to hold your
bond, our trusts can provide protection,
flexibility, control and tax-efficiency.
The importance of making a will
Make sure your possessions are given to the
people you choose, and make things easier for
your family and friends at a difficult time. A will
is an essential part of your plans.
Speak to your adviser
Your financial adviser will be able to give
you more information about any of the
information covered in this guide.
16 Protecting your assets
Pensions Savings Investments Insurance
Find out more
For more information on any of the information covered in this guide, speak to your
financial adviser.
Call us on 0845 60 60 002
We’re open Monday to Friday, 9am to 5pm. Calls may be monitored and/or recorded to
protect both you and us and help with our training. Call charges will vary.
Or you can find out more about what we offer on our website:
www.standardlife.co.uk
Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House,
30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised and regulated by
the Financial Services Authority. Calls may be monitored and/or recorded to protect both you and us
and help with our training. Call charges will vary. www.standardlife.co.uk
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